EUR/USD trimmed part of its recent losses and settled around 1.1450 after a weak US jobs report cooled demand for the dollar. Softer American employment and easing Middle East tensions dragged down the odds of a US rate hike, letting the euro claw back ground even as the pair’s longer-term picture stays bearish.
The dollar’s rally ran out of road this week, and EUR/USD settled around 1.1450 as buyers stepped away from the Greenback. Tepid American data did most of the damage, while easing concern over the Middle East war pulled investors out of safe-haven positions. Together, those forces cut the odds of further US interest rate hikes and made it easier to push the dollar lower.
Weak US jobs data undercuts the dollar
The US calendar revolved around employment, and the numbers disappointed. The Nonfarm Payrolls report showed the country added just 57,000 jobs in June, well short of the 110,000 expected and below May’s 129,000. The ADP report earlier flagged 98,000 private-sector jobs, down from 122,000, and the unemployment rate slipped to 4.2% from 4.3%.
Inflation signals softened too. The June ISM Manufacturing PMI printed at 53.3, still in expansion, but its price sub-index dropped sharply from 82.1 to 73. With a softer labor market and easing price pressures, the odds of a rate hike edged sharply lower after the payrolls release.
Cooling inflation shifts the ECB tone
On the European side, annual HICP in the euro area came in at 2.8% in June, below the previous 3.2% and under the 3% expected, while core HICP eased to 2.4%. German CPI softened to 2.3% from 2.6% over the same period, reinforcing the cooler picture. As tensions eased and inflation slowed, markets scaled back their bets on further Eurozone tightening.
ECB President Christine Lagarde struck a more balanced note in Sintra. She said risks are more broadly balanced “than a few weeks ago” and that the EU is not in stagflation. MUFG Research reads the same shift, noting that markets now price only around 20bp of additional ECB tightening by year-end after the bank’s initial 25bp increase last month.
The bearish backdrop holds
The weekly bounce has not flipped the technical picture. EUR/USD holds below its 20-day, 100-day and 200-day SMAs at 1.1470, 1.1623 and 1.1654, keeping sellers in control near term. The recent multi-week low at 1.1324 is the immediate support, with a break lower exposing the 1.1000 area.
MUFG argues the near-term risks have turned, expecting weaker employment and disinflation to keep the markets paring Fed rate hike expectations and reinforcing a softer dollar. If that holds, current levels may offer EUR/USD firmer support.
Sources: FXStreet, MUFG Research
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